The Australian Prudential Regulation Authority (APRA) has called on superannuation trustees to examine how they can improve their governance and strategic planning after releasing the findings of multiple reviews of industry business practices.
In an information paper published today, APRA has published the findings of three thematic reviews undertaken over the past 12 months covering: strategic and business planning; fund expenditure; and unlisted asset valuation practices.
Collectively, the three reviews outline risks and vulnerabilities that trustees must have front of mind to drive better practices and improve outcomes for members.
The SPS 515 implementation benchmarking review examined how 24 selected trustees were meeting the requirements of SPS 515 Strategic Planning and Member Outcomes, which came into effect from 1 January 2020. The review focused particularly on business plans and business performance reviews (BPRs). It found areas of potential improvement including the need for trustees to develop:
- greater connection between BPR findings and updates to business plans;
- greater clarity on how strategic objectives support desired member outcomes; and
- more robust analysis of the drivers of business performance and stress testing of financial projections.
The expenditure thematic review examined expenditure on advertising, sponsorships and promotions by 12 trustees representing a cross-section of the industry. In particular, it considered whether expenditure was in the best interests of members, and whether trustees had applied appropriate governance and oversight to their decisions. Among the findings, APRA observed:
- many trustees failed to rigorously measure and assess anticipated and achieved benefits to beneficiaries of expenditure on marketing campaigns and related activities; and
- instances of trustees being unable to demonstrate how additional benefits associated with sponsorships, that were provided to directors, executives and staff of the fund, resulted in any improved outcomes for members.
The unlisted asset valuation thematic review was launched in response to heightened market vulnerability prompted by COVID-19, as well as increased member switching and the Government's expansion of the early release of superannuation program. The review examined unlisted asset valuation practices among 31 trustees selected according to their level of exposure to unlisted assets and known competency in valuation governance. Key findings included:
- most trustees demonstrated a proactive approach to revaluing unlisted assets in response to heightened market volatility;
- revaluation frameworks needed improvement, board engagement was often limited, and some trustees relied overly on external parties; and
- trustees with pre-existing valuation committees typically had more robust valuation frameworks.
APRA Member Margaret Cole said the findings of the three reviews underscore the importance of governance and strategic planning in delivering sound outcomes for members and avoiding potential misconduct.
"Australians expect those they entrust with growing and protecting their retirement savings to deliver value from every business plan enacted, dollar spent and investment made.
"Overwhelmingly these reviews illustrate that robust frameworks, clear accountability and holistic approaches to business planning are essential ingredients in running what are, in most cases, multi-billion-dollar businesses with enormous fiduciary responsibilities. We expect all trustees to review their operations in light of these findings with a view to identifying any sub-standard practices and improving processes and procedures.
"While the expenditure review was conducted prior to the introduction of the best financial interests duty, where certain expenditure has continued beyond on 1 July this year, we have challenged trustees to demonstrate how it complies with the new law. Once their responses have been assessed, APRA will consider what, if any action, is necessary to protect the interests of superannuation members," Ms Cole said.
The information paper is available on APRA's website at: Findings from APRA's superannuation thematic reviews.
